No perfect retirement with this scheme

Editorial | 13 Apr 2017

It's often resented that retirement here exists in name only. For many people reaching age 65, it's just the start of a nightmare due to the absence of proper retirement protection in Hong Kong.

In this regard, the SAR is truly a town without pity.

Then will the public annuity scheme, announced by the government a few days ago, be able to make up the shortfalls and calm the fears facing the middle-class, who are about to, or have already retired?

It's common knowledge that government policies are focused on the underprivileged, with the middle class left out in the cold. It's been the source of discontent that has troubled the administration over the years.

The public annuity scheme will be managed by the Hong Kong Mortgage Corp, and is proposed to be capped at HK$10 billion.

The scheme would provide for seniors 65 or older to receive HK$5,800 a month - until death - for every HK$1 million they put into it. For those who don't have such a lofty sum, they can invest a minimum of HK$50,000, and the monthly amount they will receive will vary proportionately, starting at HK$265.

It isn't a bad deal, although far from perfect, if it's a guaranteed HK$5,800 per month - or HK$69,600 a year - will be paid out on a HK$1 million investment, which is roughly 7 percent.

Certainly, the high return could be too good to be true. Assuming a net internal return of 3 to 4 percent that is about average, the extra committed sum will have to be made up by deductions from the investment, meaning the remainder will shrink as time goes by. But mathematics should mean little for people in their sunset years. What's attractive is the HKMA, a de facto government body, guarantees payment won't be disrupted before the investor dies. So, the greater the longevity, the greater the benefits.

The pension-like annuity idea is at least worth further exploration.

The report card of the current administration is nearly bereft of merits worth mentioning. This one, however, should be a first.

If the idea can be left for Chief Executive-elect Carrie Lam Cheng Yuet-ngor to announce, it would certainly help boost her low popularity.

It was gratifying for renowned social science professor Nelson Chow Wing- sun - an advocate of non-means-tested retirement protection for everybody - to hear of the proposal. While officials had rejected Chow's pleas for generosity towards the elderly, they didn't completely fall on deaf ears.

It's likely that as more details are revealed, the scheme will be welcomed by the middle class.

That said, officials should know if payouts are fixed during the entire period, the purchasing power is bound to depreciate over time to defeat the policy objective. Therefore, will it be necessary to take inflation into account?

Furthermore, the scheme will be capped at HK$10 billion. While caution is needed, can the pool be expanded so that people with the means can invest more than HK$1 million into the fund?

While HK$5,800 a month is a nice amount to have, it's still not enough to support a middle-class lifestyle.

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